Bad news for Mad Men: MENA's advertising industry faces a rough 2017

Published October 12th, 2016 - 08:00 GMT
Taxation and reducing subsidies will have a negative effect on marketing and communications spending. (Screen Media Daily)
Taxation and reducing subsidies will have a negative effect on marketing and communications spending. (Screen Media Daily)

The message isn’t getting any better for the region’s advertising industry — after enduring a 10-12 per cent drop in billings this year, it should brace itself for a further 10 per cent fall in the next. And come 2018, there will still be reasons to be concerned about what sort of trajectory growth — if there is one — will take.

“Even before VAT [value added tax] gets introduced across the Gulf, Saudi Arabia is talking about reducing subsidies and introducing taxation on a lot of industries — manufacturing, bottling, ports, what have you,” said Elie Khouri, CEO of Omnicom Media Group Mena. “Naturally, this will have a negative impact on multinationals, manufacturers, and cause a downward trend in their marketing and communications [investments]. There will a cautious approach, because when you talk about introducing taxation, the impact on companies is unknown. Put the political, economic and taxation issues together, what we get is pressure on the marketing community.”

The impending arrival of a tax regime is one more headache that the region’s advertisers and agencies have to live with. And since early 2015, they have had their fair share. Almost simultaneously they had to deal with the consequences arising from a shift in sentiments brought on by regional conflicts and the way oil prices kept dipping below $40 (Dh147) a barrel through the better part of this period.

“Last year, we spoke about a 10-12 per cent drop in billings [for 2016] — that forecast was spot-on,” said Khouri. “We are now looking at a combined 20-22 per cent drop over two years. In any financial market, this constitutes a mini-crash. But because this happened over two years, it gave the industry time to adjust... cope with the downturn.”

And even amidst all of the gloom, the ad industry did have one gilt-edged lining it could cling on to — digital. According to estimates, digital-based advertising spend in these markets would touch 33 per cent — or $1.5 billion — of the overall billings by next year.

According to Khouri, that’s better than the spending mix the industry gets to see in France or Spain, as well as some of the Asian markets.

“Today the new normal is that we are not going to get increases in total communication budgets year-on-year,” said Khouri. “We would usually expect that advertising in media mirrors GDP growth. That’s not happening any more. At best, you will see stabilisation of investments, rather than growth, in the long term. It will be driven by digital... the digitisation of media.

“If so, digital is not a problem, but an opportunity for us.”

But there are many in the ad industry whose acceptance of digital — and social — media is half-hearted at best. That, more than anything else, has to do with the lower margins that advertisers have to operate with compared with those they could command with print, TV or outdoor platforms.

But don’t count Khouri among the reluctants. “Mobile and the internet are much more effective in delivering RoI [return on investments] for clients,” the CEO added. “And they are much more accountable.

“Data allows us to do things in a better way than we used to — for one, we can be much more targeted, much more accurate in how we apply those marketing activities. Digital is much more measurable with the data you can accumulate. “I don’t see data as an end in itself... it’s something we use to get better insights and use these learnings in a way that delivers better results for clients.

“Mobile [marketing] is getting cheaper by the day because of the abundance of network inventory that we have. It allows us to become creative, more useful, more indispensable in the whole marketing process.”

But the impression does persist that digital marketing and advertising in this region is always having to play catch-up with markets elsewhere. In Khouri’s view, that sentiment just do not square with the facts in the digital realm.

“If you look at Saudi Arabia or Kuwait, they are among the top globally in social media adoption, YouTube downloads, in terms of people using Twitter. What’s delaying us — sometimes — is the speed with which marketers adopt these trends and follow their counterparts in other markets. Sometimes, there should be more education on how fast companies should be embracing change.”

“People are always saying we are seriously delayed compared with Europe or the US — we are not. We are just as fast. If anything, we might be delayed by three months... that’s all.”

By Manoj Nair
 

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